NPA Crisis

Govt seeks Parliament nod for Rs80,000 crore recap bonds

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Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Government securities, bank recapitalisation plan, NPA

Mains level: Rising NPA in banking system and measures being taken by government for their resolution

Additional spending for bank recapitalisation

  1. The government has sought Parliament’s nod for an additional spending of Rs 80,000 crore for capitalizing state-run banks through issue of government securities
  2. This expenditure will be met through enhanced receipts indicating that this additional expenditure will not impact fiscal deficit

Why this demand?

  1. Last year, the finance ministry had announced a Rs2.11 trillion bank recapitalisation plan for state-owned lenders looking to boost bank balance sheets hit by rising bad loans
  2. This was done to ensure flow of credit to important sectors of the economy

Structure of recapitalisation

  1. Out of Rs2.11 trillion, Rs1.35 trillion was to come from the sale of so-called recapitalisation bonds and the remaining Rs76,000 crore through budgetary allocation and fund-raising from the markets

Banks under NPA pressure

  1. Indian banks are weighed down by stressed assets of close to Rs10 trillion
  2. Of this, gross non-performing assets (NPAs) account for Rs7.7 trillion and the rest are restructured loans


Government securities

  1. A Government security is a tradable instrument issued by the Central Government or the State Governments
  2. It acknowledges the Government’s debt obligation
  3. Such securities are short-term (usually called treasury bills, with original maturities of less than one year)
  4. Or long-term (usually called Government bonds or dated securities with original maturity of one year or more)
  5. In India, the Central Government issues both, treasury bills and bonds or dated securities
  6. The State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs)
  7. Government securities carry practically no risk of default and, hence, are called risk-free gilt-edged instruments

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